Russian government approves profit-based oil tax, but launch delayed

Reuters Staff

2 Min Read

MOSCOW, Nov 23 (Reuters) - The Russian government has approved a new, profit-based tax on the oil industry but it is not expected to be introduced before 2019, a year later than previously thought, the energy ministry said on Thursday.

Taxes on the industry are currently based on production - via a mineral extraction tax - and exports. Companies have long lobbied for profit-based taxation, saying it will spur production and better reflect exploration costs and risks.

The new tax will initially apply only to some pilot projects by Russian producers.

The tax legislation is expected to be approved by the lower house of parliament in the first quarter of next year, the energy ministry said on its web site on Thursday.

It will then have to be approved by the upper house of parliament and President Vladimir Putin before passing into law. Putin has yet to comment publicly on the proposal.

The energy ministry, which often lobbies for the interests of the domestic producers, had expected the new tax system would tentatively be introduced from 2018. However, objections from the finance ministry have delayed its introduction.

The Russian government has not said what the rate of the tax will be. For the first three years of the new system, the contribution to the government’s coffers is expected to be lower, although after that, the energy ministry expects revenues to increase by up to 60 billion roubles ($1 billion) a year.

The new tax will cover four groups of oilfields, including new deposits in far-flung regions of East Siberia, fields which enjoy a lower exporting duty, and some highly-depleted fields in West Siberia.

Production at pilot projects is expected to rise by almost 20 percent in the five years after the new system is implemented. ($1 = 58.3849 roubles) (Reporting by Olesya Astakhova and Polina Nikolskaya, writing by Vladimir Soldatkin, editing by Adrian Croft)